We're rich! Average American household net worth is $______

It has been widely reported today that American's have lost all gains in household net worth made since 1992. Our median household net worth is down to $77,000.

Median household net worth is the dollar amount where half of all households are above it, and half of all households are below it.

Median is not the mean average. To find the mean we would total up all household net worth and then divide by the number of households.

We use median because mean is distorted by concentrated wealth. For instance, if Bill Gates moved to a desperately poor little town the average wealth would skyrocket, but the median would move only a tiny bit, or not at all.

But just for laughs... if the median household net-worth is $77,000, what do you suppose the mean average is?

$499,000

Yup. The average household net worth in the USA is half a million bucks.

1. basically, only the top 20% own much to speak of.

2. So the mean actually increased.

So not everybody is doing worse. A smaller group is doing much better, increasing their share of the total, while the majority have lost significantly.

I sometimes wonder how accurate these kinds of stats really are. This clearly paints a negative picture about what has happened over the past 10 years. But I wonder if the real story isn't even worse than the picture painted by these stats.

I think of families I know, or that I see driving around in the city or in the rural areas. And I see tons of people who basically have $zero net wealth. I'm thinking for most people the biggest factor in their net wealth is the value of their home.

So for the approximately 33% (link) of households that rent and don't own, I guess their net wealth is pretty close to nothing. Nowhere near $77,000 anyway.

Not saying the stats are wrong. But I'm skeptical about even the $77000 median number.

OK then look at that median net worth for the bottom fifth of the income distribution: $6200.
Damn that is low. But I question whether in reality it isn't even lower than that. Remember 1/3 of households don't own a home. So where is this net worth supposedly coming from? Is it the trade in value of their car?

I'm suspicious that there is miscounting at the lower end of the income scale and the real picture is even worse than the dismal picture shown in this report.

3. according to the 2002 census of wealth

there were 110,052,000 households in the USA. 16.9% of them had zero or negative net worth. That's 18.6 million households. Another 9.3% had less than $5,000 net worth, and another 4.8% had less than $10,000 net worth. That's another 15.5 million households.

That's 31% with less than $10,000 of net worth (in 2002).

Continuing 7.6% had between $10,000 and $25,000 and 8.5% had between $25,000 and $50,000. That brings the total to 47.1% which is almost the median.

The median net worth only says

half have more than this
and
half have less than this.

Thus if you have five people, their net worth can be
0; 0; 6200; 150,000,000; and 5,800,000,000 and the median is $6,200 whereas the average (or mean) is $1,190,001, 240

or the same group could have net worth of

6199; 6199; 6200; 6201; 6201 and the median would still be $6,200.

Thus a median of $77,000 does not tell you how far people are below it.

8. except that "lowest 20%" is a division by income

Up until 6 months ago, I was in the lowest 20% by income, and yet I had a net worth over $100,000, putting me above the total median. Not all of those with less than $5,000 in net worth are in the bottom income quintile. Some members of the bottom income quintile (the bottom 20%) have a positive net worth, and some members of higher quintiles have less than $5,000 net worth. Maybe somebody making $60,000 is blowing their income on cocaine or trips to Europe instead of accumulating wealth. Maybe they have $15,000 in equity, or they did, on a home that is now underwater and they have $40,000 in student loan debt. Some of those with less than $5,000 in net worth are members of higher quintiles.

16. "There's lies, damned lies, and statistics."

14. Yes, having zero doesn't necessarily move the median

But it's still a good statistical measure, provided one takes it only for what it says.

You could, however, have a situation where the bottom 40% was wiped out entirely... homeless, down to the clothes on their back... and the median would not budge if all those people were already in the bottom 40% before being wiped out..

But, like all statistics, it is best to look at a bunch of them for a fuller picture. If the bottom 40% was wiped out entirely then the average of the bottom 20% and the 20%-40% columns would drop to zero. (As would the median.)

The average is easily distorted by the super-rich, but the average for the income sub-divisions is pretty useful.

5. Wrong

This does not disprove the notion that increased wealth for the top means increased wealth for everybody else. The rich might be getting richer while the poor are getting poorer for now, but just wait, it'll trickle down any moment.

13. LOL @ that picture!

6. The top 1% owns 40% of the total wealth in the U.S.

Notice that, on the rare occasion that the 1% is mentioned in the M$M at all, it is limited to the top 1% of income, This is a diversion. Being in the top 1% of income earners has nothing to do with being in the 1%. Most of the 1% earns no salary at all.

As my grandmother often told me, "if you're really rich, you can afford to stay off the list".

The rich have only one fear, that the rest of us will find out how much they really have.

12. $1.98 after taxes.

17. These stats perplex me

Not that I'm very stats-literate, but help me out. I see what you're saying about the spread between median and mean and the way it reveals concentratiosn of wealth. But, looking at the chart you posted, I note that there's a similar spread in every decile. Even among the <20% income group, mean net worth is a healthy $117k, well above the overall median for the country. That doesn't even seem like it should be possible. How are we supposed to read those numbers?

19. I can't see the chart but here's the theory

If you are in the bottom 20% in income but own an inherited house or land, or property from when you were paid more highly, you can still easily have above median net worth. Wealth and income are correlated (move together) but not very strongly except for those with long tenure in either the very lowest or very highest income brackets.

How many people ten to twenty years ago were buying the most expensive home they could even to having no real furniture in it and one 30 year old banger in the 3 car garage, assuming that house prices would always go up. If they bought before 03 or so they have equity, perhaps considerable equity, which is net worth. Now have them lose a job or be underemployed and very low income quite high net worth is easily reached. It's also amazing how many people who have worked under me in various jobs obviously paid less but living in fancier homes. Now my net worth was and is probably higher because I saved and invested instead, but they still have net worth above their income range.

There is a fairly constant effect called the marginal propensity to consume, that means for every extra dollar you get, you spend a slightly lower percentage of it (so if you made 1ok but now make 20k, you may spend all the extra 10k. But if you make 30k you might save 1k a year out of the next additional 10k. At 40k you may save 3k a year meaning 2k out of the next additional income and so on) but it is not a universal truth, and one great exception is real property rather than cash. You may spend all of the first extra 10k you earn, but if your grandma leaves you a 117k house you're likely to live in it not sell it like a much richer person might. At lower income levels almost all net worth is real property rather than investments.

20. But I still can't understand the absolute numbers

Basically, if I'm reading it all correctly, it says that in 2010 the median net worth of all American households was $77k, but the average net worth of the households at the bottom 20% of income earners (whose median net worth is $6k, which makes sense) is $117k. Forget real estate versus investments or anything else; as a simple matter of math, how does that make sense? How can the net worth of the poorest 20% of the country, when averaged, actually be greater than the net worth of 50% of the country? What the heck am I missing here?

EDIT: I can see how the bottom 20% net worth would be so high in absolute terms. I'm guessing the answer is old people, who live on a fixed income but own their homes outright. But I'm still having trouble seeing how the mean for the bottom 20% could be higher than the national median.

2nd EDIT: Unless maybe what this means is that there are so many people with zero (or negative) net worth at higher (or all) income levels that there ends up being very little correlation between income and net worth (in which case charting them together like that is kind of pointless). I guess that would make the numbers work.

23. Living off savings = no income

The lowest income bracket includes some folks who are well off. In fact, that 20% has the greatest inequality of all. (median 6 vs. mean 117) because it includes all the poor and some of the rich.

For instance, a retiree living off $1 million in savings isn't making any income except interest on the savings with is close to 0% these days. Probably under $10,000/year income on the million in wealth.

And a few of those folks is exactly what would drive up the average while no moving the median much.

21. I'm curious as to whether the under 35 is skewing the median lower

I wonder what the minimum age is there. There is a HUGE difference between 21 and just getting out of college and 34 and been working for 13 years and married with a spouse that is working. Also, it seems that if the median married age had been rising, it would skew the 35 and under category.